UBS writes down $10B from subprime losses; Singapore and Middle East investors take stakes

ZURICH, Switzerland — UBS AG will write off a further $10 billion in losses from the U.S. subprime lending market, the Swiss bank said Monday, and raise billions in capital through share sales to Singapore and an unidentified investor in the Middle East.

UBS said it will post a loss for the fourth quarter and may now record a loss for the full year as well. That comes on top of the 4.2 billion francs written off in its third quarter, making 14.2 billion francs ($12.6 billion) in writedowns from the subprime crisis by UBS this year.

The Government of Singapore Investment Corp., a sovereign-wealth fund, is investing 11 billion Swiss francs ($9.75 billion), while an undisclosed strategic investor in the Middle East is contributing 2 billion francs ($1.77 billion).

As recently as the middle of November, UBS had predicted a profit for the fourth quarter despite ongoing speculation about its subprime holdings.

"Conditions in the U.S. mortgage and housing markets have continued to deteriorate, and we have updated our loss assumptions to the levels implied by the current distressed market for mortgage securities," Chief Executive Officer Marcel Rohner said in a statement.

"In our judgment these writedowns will create maximum clarity on this issue and will have the effect of substantially eliminating speculation," he said.

In October the bank downgraded the value of some assets by more than 4 billion francs ($3.4 billion) because of exposure to bad U.S. mortgages. The writedown led to losses of 830 million francs ($712 million) in the period ending Sept. 30, the time in nine years the bank reported a quarterly operating loss.

Western banks have lost billions on exposure to U.S. subprime loans. Cash-rich sovereign funds have been stepping in to help them boost capital and claim a chunk of company ownership.

Last month the Abu Dhabi Investment Authority, the sovereign investment fund of the Gulf Arab state, acquired a 4.9 percent stake in Citigroup Inc., the largest U.S. bank, for $7.5 billion.

Tony Tan, deputy chairman of GIC, said the 9 percent stake does not mean Singapore is seeking control of the Swiss bank.

"GIC is now the single largest investor in UBS and this is the largest investment GIC has made in any company," Tan said at a news conference in Singapore. "We did not make it a condition that our investment should have a representation (on UBS's board.) We have no desire to control the business of the bank."

It was the first time that the publicity-shy GIC, which manages Singapore's foreign reserves, has revealed a major investment.

UBS said it brought in about 30 billion francs ($26.6 billion) in new money from clients in October and November. Ensuring a strong capital base will allow the bank to continue to make acquisitions to further expand its wealth management business, when such opportunities arise, UBS Chairman Marcel Ospel said during a conference call.

"Our losses in the U.S. mortgage securities market are substantial, but could have been absorbed by our earnings and capital base," Ospel said in a statement.

But analysts Matthew Clark and Vasco Moreono of Keefe, Bruyette & Woods Ltd. said "the writedowns and capital raising represent a dramatic U-turn from guidance given by Chief Financial Officer Marco Suter just three weeks ago."

The fact that the capital-raising outweighs the writedown makes it appear that UBS is trying to draw a line under its subprime woes, Clark and Moreono said.

Switzerland's finance minister, Hans-Rudolf Merz, told Swiss television station SF that he feared the UBS loss would cost Switzerland several hundred million francs (dollars) in lost tax revenues next year.

Analysts say it's difficult to determine whether the plan announced by President Bush last week to stem housing foreclosures would have an impact on banks. The administration said for qualified borrowers, it was extending for five years some low introductory loan rates on subprime mortgages.

"That's actually a wild guess," said Javier Lodeiro of Sal. Oppenheim. "The biggest problem right now is the liquidity of certain products. The Bush plan helps to prevent some foreclosures," but it also keeps down interest rates.

Andreas Venditti, an analyst at Zuercher Kantonalbank, said, "It's very difficult to estimate the impact because it's probably going to be quite different depending on what bank you look at. For some banks it could really be not that positive."

He said it depends on what sort of securities the banks are holding, but that people outside the banks don't have that kind of information.

"It's very complicated," Venditti told the AP. "Since we don't really know which bank is holding what kind of structures it's very difficult to assess who's going to profit and who's not."

UBS shares closed up 1.4 percent at 58 francs ($51.42) in Zurich. Shares rose $1.02, or 2 percent, to $51.50 in afternoon trading in New York.

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Associated Press writer Balz Bruppacher in Bern contributed to this report.